Hidden divergence

You know why I am revisiting divergence through this thread.

I am currently a 'mostly' if not fully PA trader. I pay a lot of attention to very small details here and there on different TFS when it comes to S/R/TLS/Patterns, Candles, etc..

However, I know that a flexibility is required. I have seen 'Divergence' traders who are more flexible than me with regard to their levels.

We all know that the market has tides and ripples and minute structures. Even Harmonics people give an explanation for why price stops a tad before previous peak/trough because of a certain harmonic ratio and so on.

Any way, the idea of working on very minute structures in tandem with bigger TFs was something I thought of a lot in the past. The idea is simply using the initial momentum on minute structure with the green light of divergence in HTFs. Never knew there was a book actually written about it.
For me Divergence in the past was one of the tools to confirm my trade but then I realised I don't really need it at all. and I kind of ditched it away.

But what if there are no clear levels (PA TLs, S/Rs, etc..), how to establish a bias? There are tons of divergences on very High Timeframes that do not really mature to what is anticipated. Ok, but we can still trade the very smaller structures that form without being very optimistic for targets or stops that would wipe the account.
This has lighted a pulb in my head ... But never found a trader who thinks this way.

So in short, find the HTF divergence and trade the very very small LTF with reasonable and modest targets.

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One important point though is to wait for "good correction and a breakout" in the very small structure like couple of waves down or up or something similar.

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My head is open again for trying divergence to see if I can use it to get this flexibility in my trading.

Don’t even bother looking at an indicator unless ONE of these four price scenarios have occurred.

You have a time based chart and and a range based chart they will look different. So the the question is what suits you more ranges or time based trading. I don't look at time based charts when I trade so I would use the range based chart.

Amazing Obersation and Call... I made some profit... I do follow you and learning from you.

CADJPY

Watching possible breakout.

PA on H4 looks clear. Divergence is there (Hidden Divergence on Histo, Classic Div on MACD). Need a retest on LTF with Hidden Div after breakout.

+42 pips on EURNZD.

wow chamane.. I saw the same divergence and took this trade. holding my boughts all the way to 1.7000

I wish you the best in your trade.

Weekend is time to look back at the opportunities that we took and those we missed. It gives us the opportunity to step back, evaluate what we should have done and therefore optimize the way we manage our trades. On the 4 HR charts, I spot 6 opportunities with a potential gain of 25 to 50 pips each, sometimes even more.

Thank yu Chamane

Hi all,
I'm regular divergence trader and exploring trading using hidden divergence. After going through the concept & chart reading, I couldn't find clarify myself of following doubts. Seek your feedback on below. I use standard settings of RSI and MACD. Used RSI, MACD and MACD-H for evaluating hidden divergence.

a) Hidden divergence seem to appear only when price pullbacks atleast to 50 Expo Mvg Avg (EMA). Pullback to 10 or 20 EMA doesn't create hidden divergence and hence, in stronger trends price may not pullback deeply. Is that your experience as well?
b) In case of hidden bullish divergence, MACD-Histogram makes lower low while price makes higher high. Does it represent that bearish momentum is coming into the trend as MACD creates bigger downward momentum and indicates sooner the current trend will end?
c) Most times noted that hidden divergence occurs close towards end of a trend or immediately after beginning of the trend. Is that the case?
d) When hidden divergence occurs, many times i have noted that regular divergence (i.e. that indicate counter trend) also forms in MACD-H. Do you take the hidden divergence or regular divergence trade in that case?
e) When evaluating hidden divergence, what do you do with smaller peaks/valleys that are formed in between two hidden divergence points in MACD/RSI indicators?
f) Any other confluence factors do you use before trading hidden divergence?
g) Trade entry: Is entry taken based on candlestick or trendline break? if trendline break, should we take entry based on candle close after breaking the trend line?
h) Any general statistics would you be able to share on strategy performance?

USDCHF 4 HR.

Hi,
Lots of questions, I see that you are looking into HD seriously. I don't have answers to all, but here are a few comments:
a) I don't use EMA's the way you do, so I can't tell which one would be better for pullbacks. I do use the Fibonacci tool though as a confirmation for that purpose.
b) I personally never felt the need to understand precisely the math behind the divergence between price and oscillators, so I cannot be of any help on the subject.
c) I haven't noted where along a trend the HD patterns occur the most, I consider them all. But I prefer those found during a clear trend.
d) When I see a HD pattern on the MACD line or histogram, I trade it. I don't bother for other divergences. I used, to, but I realized I got mixed up more often than not. Drilling down to a shorter timeframe for entry usually gives me all the room I need.
e) I usually avoid patterns showing too much noise between the start and the end of the hidden divergence. That's why I prefer using MACD and Stochastic because they show more smooth lines compared to RSI or CCI. But it is a personal choice.
f) - g) The HD pattern by itself doesn't give an entry signal. I use a number of convergence signs: Fibonacci tool for pullbacks, Donchian channel center lines for the big picture, trendlines, cross of MACD zero line on shorter timeframes and price action such as engulfing candles. I personally use the close of candles before entering. I also try to avoid major news announcements. More recently, I've been looking at a "Cost averaging" technique, but it concerns money management.
h) Hard to tell. It depends greatly on how you manage your trades. For me, I would say between 66% and 75% success with a RR = 1:1 to be conservative. For instance, I usually bring my stop loss level to breakeven when price reaches half my risk. I get stopped out often, but with a small gain instead of a loss. I prefer trading that way to protect my capital. Sometimes it allows me to catch a big run.
I am sure other traders will have different opinions on all of this, but that is the way I see it. Hope it can be of any help.

Many thanks Chamane for your great feedback and how you approach hidden divergence. I will take it up along with other comments that i may receive for further study.

Watching this pair closely on the Weekly chart where a HD pattern starts to show up. Entry signals haven't been triggered yet on the Daily chart.

Looks like another opportunity on EURCAD.

Hi divergency on GDP / USD - Wedge on 4 HR charts - predicted to go down to levels 1.28610

Hi All, been stuck in short on USD/JPN for couple of days now. I believe this trade is going to show its hand today sometime. I have stops at 112.20 and profit target of APROX 111.50. It has been diverging for a while now, so hopefully will start to move!!!!

A HD pattern on the EURCAD Daily chart and a "cost averaging trading zone" starting on the 4 HR chart. From now on, every cross of the MACD zero line on the 30 minutes chart is an entry signal until the end of the trading zone.

Usage of Multi timeframe analysis in Hidden divergence: Is it done to assess the trend and also for entry? I read in one of the internet articles on trade entry that suggests to spot hidden divergence on higher timeframe and make entry in lower timeframe.

Do you use any moving average to assess whether price is overextended from averages?

Your thoughts are welcome.